Macau casino operator Wynn Macau Ltd has raised by 2.5 percentage points the amount it usually shares with the city’s junket operators to incentivise them to bring in VIP players. That is according to a Wednesday note from Credit Suisse AG, citing checks it had made on the situation.
“As per our checks, Wynn lifted junket commission from 40 percent to 42.5 percent effective 1 March, matching its Cotai peers,” said the Credit Suisse team. The brokerage added it was the first such increase by Wynn Macau Ltd in 14 years.
In the near term, Wynn Macau Ltd might “gain VIP share despite lower margin,” added Credit Suisse.
The institution said it might be a way of Wynn Macau Ltd – which runs Wynn Macau (pictured) on the city’s peninsula and Wynn Palace in the Cotai district – to gain overall market share. Macau is currently being roiled by a sharp contraction of its tourism market. It is due to factors including a temporary near-ban - imposed by the mainland authorities on mainland residents visiting Macau – amid the novel coronavirus public health alert.
“Wynn has always stressed that they compete by product but not pricing; as such, we are very surprised by such a move especially with minimal demand now,” said the note, referring to the Wynn Macau Ltd’s typical positioning in serving high-end gamblers.
Credit Suisse however noted that, “a few months ago”, Wynn Macau Ltd had already “doubled its junket credits from one month to two months of advanced commission”.
“Competition heating up; premium mass may be at risk,” added a heading on the note from analysts Kenneth Fong, Lok Kan Chan and Rebecca Law, referring latterly to another segment of Macau gambling said to be based on cash play rather than credit-based rolling of non-negotiable chips.
The institution added that Wynn Macau Ltd market rivals Melco Resorts and Entertainment Ltd and Galaxy Entertainment Group Ltd “may lose share given similar positioning,” in terms of their respective base of players.
“In a slow recovery, we expect more marketing dollars to reactivate players,” stated the brokerage.
Seemingly referring to Grand Lisboa Palace, the new Cotai resort from SJM Holdings Ltd due according to that company to be ready at the end of 2020 – but more likely to ramp up the year after that, according to analysts – Credit Suisse stated: “ With new supply in 2021 and intensified competition, margin may miss even if revenue recovers next year.”
This aspect was “not in the price,” of Macau gaming stocks “in our view”, said the institution.
Timetable for tourism return
Credit Suisse also noted: “Industry participants see demand likely to normalise in the fourth quarter as [China] visas reopen in phases,” from “late April/May,” versus some expectations in the market that inbound travel restrictions would be lifted “at once”.
Mr Fong and his colleagues observed – regarding outbound travel bans being ended for mainlanders – referring initially to the most prosperous Chinese conurbations: “The first stage is likely to cover the [Chinese] coastal cities by late April/early May while the others [come back] gradually in June/July.”
The institution added: “If the summer holiday and [educational] exam [system] is delayed in China, the demand is likely to normalise in fourth-quarter 2020,”.
With regard to junket incentives, in the past, the local casino industry typically expressed the key component offered to junkets as a percentage of rolling chip turnover. That had the disadvantage that it had to be paid at that rate by the casino, whatever the house’s hold rate on the VIP business.
Over time, the industry moved back mostly to expressing incentives as a “revenue share” model – on the 40:40:20 basis of gross gaming revenue as seen during the monopoly days of Stanley Ho Hung Sun, with approximately 40 percent of gross gaming revenue going in tax to the government, 40 percent to the junket, and 20 percent to the operator. Under that model, there can also be incentives above the 40 percent of revenue, for those junkets that generate above a certain threshold of VIP business for the operator.
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Partner and director overseeing government affairs at casino industry consultancy Global Market Advisors